Hey, South African business owner! You’ve built a solid business, but have you thought about what happens to your wealth when you’re gone? Estate duty can take a big chunk—up to 25% on estates over R30 million. The good news? There are clever ways to be SMART with this tax and leave more for your loved ones. Let’s dive into some slick strategies that keep your cash out of SARS’ hands, tailored for you as a busy entrepreneur.
Retirement Funds: Your Tax-Free Stash
Got a pension, provident, or retirement annuity? Good news—these don’t get hit by estate duty because they fall under the Pension Funds Act, not your estate. When you pass, the fund’s trustees decide who gets the money (think spouse, kids, or anyone financially dependent), not your will. So, it skips the estate and the taxman.
Pro tip: Keep your beneficiary nominations updated, but know trustees have the final say. Want cash for your family right after you’re gone? Pair this with other tools. Connect with FFREEDOM team below.
Living Annuities: Fast Cash, No Duty
A living annuity is like a VIP pass for estate planning. You pick your beneficiaries—anyone, not just dependants—and when you’re gone, the money goes straight to them, bypassing your estate and estate duty. They can cash out (with some tax), roll it into their own annuity, or mix and match. No beneficiaries? It goes to your estate but still dodges duty, though executors might nibble with fees. For quick liquidity, this is your go-to—just name those beneficiaries clearly.
Buy-and-Sell Insurance: Keep Your Business Smooth
If you’ve got business partners, a buy-and-sell policy is a must. It lets surviving partners buy your shares if you pass, and if set up right, the payout skips estate duty. Here’s the deal: your co-owner pays the premiums, and a tight buy-and-sell agreement spells out the share transfer plan. Mess this up, and SARS could swoop in.
Get a pro to draft the agreement with FFREEDOM—trust me, it’s worth it to keep your business humming and tax-free.
Key Person Insurance: Protect Your Biz, Skip the Tax
Got a star employee or partner your business can’t lose? Key person insurance covers that risk, and if your company owns the policy and pays the premiums, the payout avoids estate duty. The cash goes straight to the business, not your estate, keeping things running without a tax hit. Just make sure it’s not a family-owned company, or the exemption might not fly.
Life Insurance for Your Spouse: Love and Tax Savings
If your spouse or permanent life partner is the beneficiary of your life insurance, the payout is estate duty-free under Section 4(q). It goes directly to them, no tax, no executor fees. Bonus: if the policy is tied to an ante-nuptial or post-nuptial contract (for married couples under the Marriage or Civil Union Act), it’s completely out of your dutiable estate, even for kids. Life partners, sadly, don’t get this contract perk.
The Bottom Line
You’ve worked hard to build your empire—don’t let estate duty shrink it. Retirement funds, living annuities, buy-and-sell policies, key person insurance, and spouse-linked life policies are your toolkit to cut taxes and boost what you leave behind. But here’s the kicker: these need to be set up right. Chat with a financial advisor or estate planner to nail the details, like agreements or nominations. Want to keep your legacy intact? Start planning now and keep SARS at bay!
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